And now, China takes center stage

It’s the day when Asian markets take center stage, with the
release of GDP and other critical data from China.

Data from the world’s second-largest economy has been mixed in
recent weeks, and markets are trying to figure out just how
quickly the growth in China really is slowing.

Following a sharp slowdown during the financial crisis of 2008-09
and subsequent stimulus splurge that saw growth accelerate
sharply in the years following, the economy has been slowing of
late on the back of a government drive to address overcapacity in
certain sectors.

That trend is expected to continue today with the economy tipped
to have grown at an annual rate of 7.0% in the March quarter,
below the 7.3% level seen previously. While the increased size of
the economy makes maintaining high growth levels harder to
achieve, if that is the number it’ll be the slowest expansion
seen since the global financial crisis.

Aside from the GDP figure that will steal the headlines, there’ll
also be data for industrial production, retail sales and urban
fixed asset investment for March. Industrial production and
retail sales are expected to have grown 6.9% and 10.9% from a
year earlier, some 0.1% and 0.2% higher than what was reported
previously, while industrial production, having already fallen to
a multi-decade low in February, is tipped to slow further to
13.8%. This chart shows how those figures have all been falling
in recent years too:

BI Australia

Chinese stocks have been on a monumental tear of late.
Eye-popping gains have been seen, in some cases in excess of 100
percent, with one factor being the belief that weaker economic
data will only encourage policymakers – China’s government – to
add more stimulus.

While the old saying that “weak data is good, strong data bad”
has been apparent in more-established markets since 2009 –
because poor data increases the likelihood of stimulus – it
appears that Chinese investors are now adopting a similar
mindset.

While it’s not the sole reason behind the stock market rally –
there are other factors at play including the desire of the
government to boost household consumption through increased
wealth – it will be interesting to see how markets react to the
number, particularly in China and those nations that rely heavily
upon the Chinese economy for economic growth themselves.
Certainly heading into today’s data it’s clear that markets, by
and large, are positioned for further weakness.

Will the mindset that “bad is good, good is bad” be maintained
or, as was largely the case prior to the financial crisis, will
it revert back to “good is good, bad is bad”? Based on recent
indications the former looks far more likely than the latter.